The Impact of Foreign aid on Developing Nations Essay - 1100 Words

The Impact of Foreign aid on Developing Nations (Essay Sample) Content: Impact of Foreign Aid on Developing NationsNameInstitutionImpact of Foreign Aid on Developing NationsForeign aid refers to any form of military, technical, monetary, or humanitarian assistance that is offered to crisis-ravaged developing countries in an attempt to restore economic, social, and political order. Burnside and Dollar (2000) assert that the impact of foreign aid could either be positive or negative on the developing nation, subject to the implementation decisions made by government. This work seeks to evaluate positive and negative impact of foreign aid flows, based on decisions made by the post-genocide government of Rwanda. The Rwandan genocide of 1994 is remembered as one of Africas most vicious civil wars in recent times. The loss of human lives is said to be the biggest consequence of war. Rwandas death toll was approximated to be nearly 800000 fatalities in less than three months of fighting (Andrew 2008). Civil conflict resulted in countrywide destr uction of infrastructure such as transport networks, hospitals, and schools. The war prohibited utilization of productive resources, leading to major economic losses. The monetary cost of the Rwandan genocide cannot be approximated accurately.The staggering loss of human lives and destruction of property in Rwanda prompted the International community to engage their new government in reconstruction activities. From 1995, the international donor community pledged substantial amounts of foreign aid to the war-torn sub-Saharan nation. At the Donors Round Table in Geneva, different foreign governments committed more than $600 million in aid to the restoration of Rwanda. By 2006, Rwanda had received foreign aid totaling more than $5,064,210,000. Foreign assistance accounts for nearly 45% of Rwandas gross domestic product, making it one of the most dependent nations in Africa. Scholars have over the past century debated the impact of foreign aid flows to developing countries. In individua l studies, Collier and Hoeffler (2002), Easterly (2003), and Miguel et al. (2004) have shown that there is a positive correlation between foreign aid and economic growth in developing nations. Easterly (2003) emphasizes the need for strong political governance and frameworks to ensure that the foreign aid achieves its intended purpose. The Modernization Theory in social economics explains different mechanisms through which foreign aid may impact developing nations positively. Firstly, multilateral assistance increases the developing nations ability to invest, import capital goods and technology, ability to develop infrastructure, and calm economic tension. Miguel et al. (2004) underscores the importance of multilateral aid in filling balance of trade deficits, and promoting endogenous technological improvement. On the flipside, proponents of the Dependency Theory assert that foreign aid may impact negatively on the economic growth of developing nations. Fearon and Laitin (2003) expl ain that foreign aid is culpable for creating an unbreakable chain of dependence in developing nations. Citizens and governments of such countries get used to foreign assistance, thus limiting their ability to utilize the resources in their own country. Dependence also cites the possibility of exploitation of developing nations by their donor nations, leading to further economic distress. A cross-country survey conducted by Van de Walle (2001) indicated that high levels of foreign aid were likely to erode the quality of governance indexes leading to corruption, bureaucracy, impunity, rent-seeking tendencies, reduced quality of public goods, and intensified conflict over allocation of foreign aid resources. The Rwandan government, led by President Paul Kagame, has achieved unparalleled success in restoring the country from social, economic, and political shambles to become a glowing beacon of success in Africa. Post-genocide Rwanda has attained impressive development, far surpassing the economic growth of most sub-Saharan countries. Good governance from President Kagame, a zero-tolerance policy on corruption, citizens will to reconcile despite past traumatic events, and a clear economic vision has put Rwanda on the trajectory to become Africas next economic giant (Collier Dollar 2002). Rwanda partners with several international organizations and individual countries to provide multilateral assistance. Its biggest donors are the United Kingdom, the United States, Netherlands, and Belgium. In order to ensure continued social, economic, and political attainment, Rwanda has created a long-term development framework dubbed Vision 2020. Its mission is to transform Rwanda from a low-income, agriculture-based economy to a knowledge-based, service-oriented economy with a middle-income country status by 2020 (Collier Dollar 2002). The countrys long-term vision is buoyed by medium-term strategies that are primarily aimed at poverty reduction, creation of employment oppo rtunities, improving social amenities, rural development, and reduction of income inequalities among citizens. To achieve its medium-term and long-term development visions, Rwanda depends heavily on foreign aid from donors and international development agencies. The United States, through USAID, provides assistance to the Rwandan government through project aid initiatives such as, Presidents Emergency Plan for AIDS Relief (PEPFAR), Feed the Future (FTF), Global Health Initiative (GHI), and the Presidents Malaria Initiative (PMI) (Miguel et al. 2004). The World Bank Group also plays a pivotal role in accelerating economic growth in Rwanda. Its Country Partnership Strategy (CPS) is aimed at fostering growth of Rwandas private sector, improving rural development, and supporting responsible governance. The countrys health sector has also been a major beneficiary of financial and technical assistance from donor countries. The 1994 genocide completely decimated Rwandas health sector. Hosp itals and local clinics were destroyed, leaving thousands of civilian casualties to suffer and die due to lack of medical attention. President Kagame has emphasized, through clear course of action, the need to revamp the health industry. The country has relied on foreign assistance to reduce deaths from tuberculosis, malaria, diabetes, and HIV by 80%. Infant and maternal mortality have dropped by 60%, making Rwanda the only sub-Saharan country to meet its Millennium Development Goals (MDGs) (Peter 2009).